Competition for Private Capital and Central Grants: The Case of Japanese Industrial Parks

We construct a simple model of fiscal competition taking `rent-seeking' behavior of local governments into account and estimate a policy reaction function based on the model. We consider the scale of public input as each local government's policy tool. Local autonomies' method of seeking central grants often takes the form of personnel exchange with central government. Our estimation of the policy reaction function suggests that such personnel exchange has an effect on the development of industrial parks.